Entrepreneurship
2
Chapter 1
The Nature and
Importance of
EntrepreneursNature and Development of
Entrepreneurship
Entrepreneur - An individual who takes
initiative to bundle resources in
innovative ways and is willing to bear
the risk and/or uncertainty to act.
Or
Entrepreneur = An individual who gather
resources to create an economic activity
while bearing different types of social and
economic risks.Nature and Development of
Entrepreneurship
Entrepreneurship is the process of creating
something new (1) with value of devoting the
necessary time and effort (2) assuming the
accompanying financial, psychic, and social
risks (3) and receiving the resulting rewards
of monetary and personal satisfaction and
independence (4).
Being an entrepreneur today:
1. Involves creation process.
2. Requires devotion of time and effort.
3. Requires assumption of necessary risks.
4, Involves rewards of being an entrepreneur.Nature and Development of
Entrepreneurship
1. Involves creation process
* Creating something new of value to the
audience for which it is developed
* Audience could be:-
. The market of buyers in the case of a business
innovation
. The hospital's administration in the case of a new
admitting procedures and software
Prospective students in the case of a new course or
even college of entrepreneurship
. The constituency for a new service provided by a
nonprofit agencyNature and Development of
Entrepreneurship
. Requires devotion of time and effort.
Only those going through the entrepreneurial
process appreciate the significant amount of time
and effort it takes to create something new and
make it operational
. Requires assumption of necessary risks.
Risks take a variety of forms, depending on the
effort of the entrepreneur, but usually center
around financial, psychological, and social areas.Nature and Development of
Entrepreneurship
. Involves rewards of being an entrepreneur.
Rewards include independence, followed by
personal satisfaction.
Profit for entrepreneurs; the monetary reward
comes into play sometimes considered as success.The Entrepreneurial Decision
Process
" Deciding to become an entrepreneur by
leaving present activity
«Millions of companies are formed despite recession,
inflation, high interest rates, lack of infrastructure,
economic uncertainty, and the high probability of failure.
= Although no one knows the exact number in the united;
states estimates indicate that 1.1 to 1.9 million new
companies formed in a year.
= The entrepreneurial decision process
entails a movement, from something to
something - a movement from a present
lifestyle to forming a new enterpriseThe Entrepreneurial Decision
Process
_Change from present lifestyle Form new enterprise
Work environment <——> Desirable
: disruption L.Cultural
2.Sub-cultural
3.Family
4.Teachers
5.Peers
Possible
1.Government
2 Background
3.Marketing
4 Role models
5.FinancingThe Entrepreneurial Decision
Process
= Change from present lifestyle
* The decision to leave a career or lifestyle is not an easy
one. It takes a great deal of energy and courage to
change and do something new and different.
1. Work environment (R&D and Marketing)
* While working in technology (research and development)
individuals develop new product ideas or processes and
often leave to form their own companies when these new
ideas are not accepted by their employers (R&D).
* Similarly, individuals in marketing become familiar with
the markets and customers unfilled wants and needs,
and they frequently leave to start new enterprises to fill
these needs (Marketing).The Entrepreneurial Decision
Process
2. Disruption (a negative force)
* A-significant number of companies are formed by
individuals who have retired, who are relocated due to a
move by the other member in a dual career family, or
who have been fired.
There is possibly no greater force than personal
dislocation to galvanize (shock into taking action) a
person’s will to act.
=" The decision to start a new company occurs
when an individual perceives that forming a
new enterprise is both desirable and
possible.The Entrepreneurial Decision
Process
= Desirability of new venture formation
= Aspects of a once situation that make desirable to start a
new enterprise are culture, subculture, family, teachers
and peers
1. Aculture that values an individual who successfully
creates a new business will spawn more venture
formation than one that does not. The American culture
places a high value on being a success and making
money - all aspects of entrepreneurship. (Culture)
2. Many subcultures that shape entrepreneurial value
systems operate within a cultural framework. For-
example Route 128 (Boston), Silicon Valley (California),
Denver etc. (Subculture)The Entrepreneurial Decision
Process
= Desirability of new venture formation
3. Studies of companies in a variety of industries
throughout the world indicate that a very high
percentage of the founders of companies had
fathers/mothers who valued independence. The
independence achieved by company owners,
professionals, artists, professors, or farmers permeates
their entire family life giving encouragement and value to
their children’s company-formation activity. (Family)
4. Encouragement to form a company is further stimulated
by teachers, who can significantly influence individuals to
regard entrepreneurship as desirable and viable career
path. (Teachers)The Entrepreneurial Decision
Process
= Desirability of new venture formation
Finally peers are very important in the decision to farm a
company. An area with an entrepreneurial pool and a
meeting place where entrepreneurs and potential
entrepreneurs can discuss idea, problems, and solution
spawns more new companies than an area where these
are not available. (Peers)The Entrepreneurial Decision
Process
Possibility of new venture formation
Factors making possible to create a new venture are
government, background, marketing, role models,
financing.
1. The government contributes by providing the
infrastructure to help and support a new venture (e.g.
roads, communication, transportation system, utilities,
tax rate and economic stability). (Government)
2. Entrepreneur must have the necessary background.
Formal education and previous business experience give
the skills needed to form and manage a new enterprise.
(Background)The Entrepreneurial Decision
Process
= Possibility of new venture formation
3.
Marketing also plays a critical role in forming a new
company. In addition to the presence of a market of
sufficient size, there must also be a level of marketing
know how to put together the best total package of
product, price, distribution (placement) and promotion
needed for successful product launch. (Marketing)
A role model can be one of the most powerful influences
in making company formation seem possible. To see
someone else succeed makes it easier to picture yourself
engaged in a similar activity. (Role models)
Finally financial resources must be readily available.
Although most of the start up money for any new
company comes from personal savings, credit, friends,
family and relatives, there is often need for addition seed
capital. (Financing) 5Types of Start-ups
1. Lifestyle-firm: A small venture that supports the
owners and usually have little opportunities to
grow and expand
A lifestyle firm is privately held and achieve modest
growth due to the nature of the business, the objectives
of the entrepreneur, and the limited money devoted to
research and development.
This type of firm may grow after several years to 30-40
employees and have annual revenues of about $20
millionTypes of Start-ups
2. Foundation company: A type of company formed
from research and development that usually does
not go public.
The foundation is created from research and
development and lays the foundation for a new business.
This type of startup rarely goes public, it usually draw
the interest of private investors only, not the venture-
capital community.
This firm can grow in 5-10 years from 40-400 employees
and from $10 million to $20 million in yearly revenues.Types of Start-ups
3. High-potential venture (These firms are also called
gazelles): A venture that has high growth
potential and therefore receives great investor
interest and are integral to the economic
development of an area.
High-potential venture is the one that receives the
greatest investment interest and publicity. While the
company may start out like a foundation company, its
growth is far more rapid.
After 5-10 years the company could employ around 500
employees with $20 million to $30 million in revenue.Role of Entrepreneurship in
Economic Development
= The role of entrepreneurship in economic
development involves more than just increasing
per capital output and income; it involves initiating
and constituting change in the structure of
business and society. This change is accompanied
by growth and increased output, which allows
more wealth to be divided within the various
participants.
= Innovation is depicted as a key to economic
development, not only in developing new products
(or services) for the market but also in stimulating
investment interest in the new ventures being
created,Defining Innovation
" Defining a New Innovation (Product or
Service)
= Newness can be:
* In the consumer concept.
* A change in the package or container.
= Slight changes or modifications in the appearance of
the product. (Industrial market)
= Companies also add products to their product
line that are already marketed by other
companies; products are new to the
manufacturer but not the consumer.Innovation
" Types of Innovation
" Breakthrough
* Breakthrough — New products with some technological
change e.g. Virtual 3D Glasses, telephone, alkaline
batteries
= Fewest number of innovations.
" Establishes the platform on which future innovations in
an area are developed.
* Should be protected by patents, trademarks, and
copyrights.Innovation (cont.)
= Technological
* Technological - New products with significant
technological advancement e.g. Nokia 3310 to Nokia
Lumia or cassettes to CD’s
" Occurs more frequently; not at the same level of
breakthrough inventions.
= Offers advancements in the product/market area.
" Needs to be protected.Innovation (cont.)
" Ordinary
* Ordinary - New products with little change e.g. Smart
Phone series S3, S4, SS
* Occurs most frequently.
" Extends a technological innovation into a better
product or service or one that has a different market
appeal.
* Usually come from market analysis and pull, not
technology push.The Entrepreneurial Process
* Opportunity Identification - The process
by which an entrepreneur comes up with
the opportunity for a new venture.
= Determine Market Size and
Characteristics /Segments
" Window of Opportunity - The time period
available for creating the new venture.
" Business Plan - The description of the
future direction of the business.How Entrepreneurs Think
« Entrepreneurs in particular situations may
think differently than others when faced
with a different task or decision
environment.
# Given the nature of their decision-making
environment, entrepreneurs may need to:
» Effectuate (see next slide)
= Be cognitively adaptable.
= Learn (quickly) from failure.How Entrepreneurs Think (cont.)
« Effectuation processes
» Starts with what one has (who they are, what
they know, and whom they know).
= Make decisions based on one’s resources rather
than working backwards from goal.
» Entrepreneurial mind-set involves the
ability to rapidly sense, act, and mobilize,
under (typically) uncertain conditions.How Entrepreneurs Think (cont.)
" Cognitive Adaptability describes the
extent to which entrepreneurs are:
* Dynamic, flexible, self-regulating and engaged
in the process of generating multiple decision
frameworks focused on sensing and processing
changes in their environments and then acting
on them.
« Derives from an entrepreneur’s meta-
cognitive awareness.How Entrepreneurs Think (cont.)
» Achieving cognitive adaptability
= Comprehension questions - Aids understanding of
the nature of the environment before addressing an
entrepreneurial challenge.
Connection tasks - Stimulates thinking about the
current situation in terms of similarities and differences
with situations previously faced and solved.
Strategic tasks — Stimulates thoughts about which
strategies are appropriate for solving the problem (and
why) or pursuing the opportunity (and how).
Reflection tasks - Stimulates thinking about their
understanding and feelings as they progress through
the entrepreneurial process.How Entrepreneurs Think (cont.)
» Entrepreneurs with higher cognitive adaptability
are better able to:
= Adapt to new situations.
= Be creative.
* Communicate their reasoning behind a particular
response.
» Ultimately be successful in their entrepreneurial
venture.How Entrepreneurs Think (cont.)
» An entrepreneur’s motivation is not simply to
make a (large) profit but also from:
= Loyalty to a product.
= Loyalty to a market and customers.
= Personal growth.
= The need to prove oneself.
= The need to be independent (!!)
" WHAT ARE YOUR ENTREPRENEURIAL
MOTIVATIONS?